Risk and Reward

The strategy had seemed fool-proof. When Austrian capital flooded the former Eastern Bloc after 1989, one of the main products offered by the banks were loans denominated in foreign currency – namely, euros or Swiss francs. In exchange for hedging against currency fluctuation, banks were able to reward borrowers with lower interest rates. The assumption was that these countries would eventually join the euro; these FX loans would pave the way.

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